Three advisory firms oppose sale of Cedar Fair, urge 'no' vote

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How to vote

Those who own shares of Cedar Fair can vote on the proposed acquisition by Apollo Global Management in person at a special meeting on March 16. The meeting will be held at 9 a.m. at the Sandusky State Theatre in Sandusky. Shareholders also received information on how vote in advance by mail, telephone, or Internet.

CLEVELAND, Ohio -- Cedar Fair is facing yet another challenge in mustering shareholder support for the company's proposed acquisition by a New York private equity firm: three highly regarded independent advisory firms are telling shareholders to vote "no."

The company's largest shareholder, Q Investments, touted that fact on Tuesday as part of its campaignto convince other investors to vote against the deal. A vote will be taken at a shareholder meeting on March 16.

RiskMetrics Group, Proxy Governance, and Glass Lewis & Co. all agreed with Q Investments in saying they think the timing of the deal is bad, and that the sale price undervalues the Sandusky-based amusement park company. The three firms specialize in selling advice to investment firms on corporate governance issues.

A fourth, lesser-known firm, called Egan-Jones, advised shareholders to vote in favor of the deal, pointing to arguements made by Cedar Fair in its proxy statement.

Under the terms of the proposed $2.4 billion acquisition, Apollo would buy Cedar Fair's assets for $635 million, as well as pay off its more than $1.7 billion debt. Investors would get a payout of $11.50 per limited partner unit. Cedar Fair's share price closed at $11.11 on Tuesday.

Along with Q Investments, Neuberger Berman, Cedar Fair's second largest shareholder, also says it plans to vote against the acquisition. Between the two of them, the firms control nearly 30 percent of Cedar Fair shares, and therefore, votes.

Since the company needs a two-thirds majority, that means nearly all other shareholders would need to vote in favor of the deal for it to go through.

In a letter to unit-holders this month, Cedar Fair's chief executive Richard Kinzel urged every shareholder to vote.

"Your vote is important," he wrote. "No matter how few units you own."

Kinzel wrote that the company's huge debt, which will begin coming due next year, could weigh a heavy burden on the company if the acquisition doesn't go through, and if park attendance and sales don't drastically improve.

"As it stands today. . . we could be in danger of violating certain of the covenants in our credit facility," Kinzel wrote. That could mean higher interest costs for the company in the future, or an inability to refinance the debt altogether, he said.

But Colin Reugsegger, an analyst for Glass Lewis & Co., criticized Cedar Fair's board for offering few details or analysis of its debt situation.

"We believe the board has failed to establish that the proposed merger with Apollo is the best means by which to address" its outstanding debt problems, he said.

All three firms seemed optimistic in their reports that Cedar Fair would be able to find a route to managing its debt in a way that would be more beneficial for shareholders.

Q Investments declined to be interviewed. But according to Reugsegger's report, the investment firm has said that it believes Cedar Fair could negotiate with its current lenders to work out a deal that would allow it to bring back the dividend that it eliminated at the beginning of this year.

However, Kinzel told shareholders in his letter that's very unlikely.

"Based on the amount of our outstanding debt, the uncertainties of the future and the experience of the last 18 months, we believe it would be imprudent to re-instate the distribution, even if our financing arrangements allowed, until we are able to reduce our outstanding debt to an appropriate level," he wrote.

Kinzel said the deal with Apollo is a way for shareholders to avoid uncertainty and get cash for their holdings now.

Jeffrey Thomison, an equity analyst who follows Cedar Fair for Hilliard Lyons, said if the deal is turned down, he expects Cedar Fair's share price to plummet. However, if business conditions improve, he expects that shares could be trading above $15 within two years.

"It appears that the company would be able to sustain itself going forward, especially in light of the improving economy and as amusement park season approaches," Alesandra Monaco, vice president of research for Proxy Governance, wrote in her report.

According to a story posted on the Wall Street Journal's Web site on Tuesday evening, creditors of bankrupt Six Flags believe that Apollo Global Management could be planning to merge Cedar Fair with Six Flags, if the investment firm succeeds in buying the Sandusky-based company.

According to the article, some of Six Flag's creditors think Apollo could be working with Avenue Capital Management, an investment fund that is leading the drive to take over Six Flags in Chapter 11. The Web site reported that Andrew Dash, an attorney representing Six Flag's unsecured creditors pressed Six Flag's Chief Financial Officer Jeffrey Speed during a bankruptcy hearing to tell him why representatives of Avenue Capital had made a visit to Cedar Fair.

Speed confirmed the visit, but said he could "only speculate" that Avenue was trying to learn more about the amusement park business now that it was committed to leading a $450 million equity raise to bail out Six Flags.

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